Thomas Rentsch
CFA, Senior High-Yield Portfolio Manager
Does a narrowing of risk premiums signal the prospect of negative performance?
“Following the strong performance of the European high-yield bond market in recent months, risk premiums can no longer be described as attractive by historical standards,” says our expert and Senior Portfolio Manager Thomas Rentsch.
Historical Distribution of Risk Premiums in the Euro High-Yield Market
(January 2010 – February 2024)
Source: Bloomberg (Bloomberg Euro High Yield ex Financials BB-B 3% Capped Total Return Index); frequency of end-of-day risk premium levels; as of February 5, 2024.
- This suggests that we have now largely moved past the narrowing of risk premiums that began in mid-2022, when concerns about high inflation and rising interest rates weighed on the markets.
However, this does not necessarily mean negative performance, as the attractive current yield of 5.4% continues to be earned.
In addition, falling interest rates or successful credit selection could further improve performance.
Source: Bloomberg (Bloomberg Euro High Yield ex Financials BB-B 3% Capped Total Return Index)
Opportunities and Risks
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